By George Coucounis
LAND consolidation, as a development scheme, aims at the development of properties in the area affected and it is possible for certain properties to be mortgaged. When a new property is created through the consolidation, any existing mortgage or other charges are transferred on it, the owner having the right to object in the event his rights are affected, as it happens when two or more of his properties are consolidated.
The Committee of Consolidation and Re-distribution establishes, assesses and examines the encumbrances and advises the owner regarding the means of discharging or amending them or even paying them off through proper compensation. The relevant recommendation for the transfer, amendment or re-payment of an existing encumbrance and any relevant compensation are published together with the consolidation scheme.
On expiry of the time limit for a recourse or after a judgment is issued in pending recourses, the Committee notifies the Director of the Land Registry of the transfers, amendments or re-payments of encumbrances and he has the power to amend the land registry records accordingly. The Director may issue more than one registration regarding affected properties which are burdened by a mortgage or another charge. When the land registry records are amended, a new registration or registrations are made and the Director transfers the existing mortgage or charge upon the properties to be burdened; their owner is not entitled to make a transaction for them, unless and until the charge is removed.
A dispute arose between the owner of a mortgaged property affected by the land consolidation scheme and a banking institution, regarding the procedure followed which led to the forced sale of the new property created after the consolidation of the owner’s two pieces of land.
In particular, a judgment was issued against the owner, who granted a mortgage in favour of the bank as security for a loan given to another person as principal debtor. The bank registered a memo on the property and filed an application for the forced sale of the mortgage.
While this procedure was pending, a land consolidation scheme was put into force, the mortgaged property was consolidated with another property of the owner and the mortgage was transferred onto the whole new property created.
Thereafter, the forced sale proceeded and the successful bidder was the bank, which acquired the property. The bank collected all the amounts considered due under the judgment of the Court and there was a surplus which the Land Registry offered to the owner, but he refused to collect it.
The owner filed an action against the bank and the Director of the Land Registry, claiming the cancellation of the forced sale and an order for the re-registration of the property into his name, as well as other alternative claims. The Court of first instance held that the procedure followed for the transfer of the mortgage and the forced sale was correct and issued a judgment for the surplus of the proceeds from the sale to be given to the owner; however, the Court ordered him to pay the costs.
The owner filed an appeal and the Supreme Court in the judgment issued on December 6, 2017 upheld the judgment regarding the procedures followed, but it did not agree with the amount awarded to the owner and the order regarding the payment of costs.
The Supreme Court examined the aspects of the case and held that the owner was aware of both the procedure for the consolidation of his two properties and the forced sale.
The land consolidation procedure followed under which the two properties were consolidated into one, upon which the mortgage was transferred, was within the ambit of the law, but the owner did not make use of his right to object to the transfer of the mortgage upon the new property.
However, it held that the bank, being the mortgage creditor, could not collect from the forced sale proceeds an amount more than double of the capital, since under the circumstances of the case, the law regarding the liberalisation of interest rates could not apply.
Therefore, the bank was forbidden from collecting interest higher than the amount of the capital. The bank was entitled to collect double the amount secured by the mortgage, plus the forced sale costs; the amount offered by the Land Registry to the owner should have been higher, so the Supreme Court issued a judgment in this respect and ordered the bank and the Republic to pay the costs.